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US Dollar falls to 6-week low with all eyes on interest rate moves

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By David Henry

NEW YORK (Reuters) -The dollar slumped to a six-week low against other major currencies on Monday as markets sorted out the plunge in U.S. Treasury yields last week after the Federal Reserve reiterated that any spike in inflation is likely to be temporary.

Improved risk sentiment shown by the recent rally in global stocks to record highs also weighed on the greenback.

The dollar index fell 0.58% to 91.082, continuing a downtrend that started at the end of March.

With the moves, the British pound gained 1% to come within a hair of $1.40 for the first time since March 18. More evidence of the economic recovery in Britain from the pandemic is expected from data to be released later this week.

The greenback’s weakness was pronounced across the board, with the currency hitting multi-week lows against other major peers in the G10 group of currencies, including the Japanese yen, the Swiss franc, the Australian dollar and the New Zealand dollar, and the euro.

The moves are the reverse of what was happening in the first three months of the year when the dollar gained against the same major currencies as yields rose on U.S. Treasuries and offered higher returns on the greenback, said Joseph Trevisani, senior analyst at FXSTREET.COM.

The degree of the dollar’s weakness during Monday trading seemed to track the yield on the 10-year Treasury which was last up slightly to $1.5994 after having plunged to 1.5280% on Thursday from a one-year high of 1.7760% in March.

The dollar index had gained 3.6% in the first three months of the year before turning down.

“Indeed, the USD rally is all but distant memory by now and the currency’s underperformance seems to reflect the apparent divergence in the outlook between the slumping UST yields and the rather perky bond yields elsewhere,” said Valentin Marinov, head of G10 FX research at Credit Agricole.

“This is almost the exact opposite of the moves we saw in March,” Marinov said.

The euro rose above $1.20 for the first time since March 4 to $1.2037 in the afternoon in New York. The European Central Bank meets on Thursday with internal divisions over the pace of bond-buying, extended COVID-19 lockdowns and potential delays to the EU recovery fund forming the backdrop.

The market is in a period of consolidation in U.S. yields and the dollar exchange rates, according to Masafumi Yamamoto, the chief currency strategist at Mizuho Securities in Tokyo.

The dollar bought 108.135 yen on Monday afternoon and reached its weakest level since March 5.

MSCI’s emerging market currency index hit its highest level in a month and last traded 0.15% higher on the day.

Fed Governor Christopher Waller said on CNBC on Friday that the U.S. economy “is ready to rip” as vaccinations continue and activity picks up, but a rise in inflation is likely to be transitory, echoing comments from other U.S. central bank officials, including Chair Jerome Powell, over the past week.

Their statements have clashed with market expectations that Fed officials will see signs of rising inflation in strong economic data and decide to tighten monetary policy sooner than they have indicated.

The currency and bond markets are looking to two events on Wednesday for clues to where interest rates are going: An auction of $24 billion of 20-year U.S. Treasuries and statements from the Bank of Canada about when it might cut bond purchases and allow rates to rise.

The Bank of Canada may foreshadow what is coming for U.S. rates by signalling a tightening of monetary policy, said Trevisani. “That’s the direction the Fed is going to have to go, too, eventually,” he said.

Bitcoin slipped about 1% to $55,782 on Monday afternoon in New York in a day of relatively steady trading after plunging on Sunday.

Data website CoinMarketCap cited a blackout in China’s Xinjiang region, which reportedly powers a lot of bitcoin mining, for the selloff.

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Currency bid prices at 3:13PM (1913 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

91.0820 91.6180 -0.58% 1.224% +91.7480 +91.0310

 

Euro/Dollar

$1.2037 $1.1983 +0.45% -1.48% +$1.2048 +$1.1943

 

Dollar/Yen

108.1350 108.7900 -0.60% +4.66% +108.8250 +108.0100

 

Euro/Yen

130.15 130.34 -0.15% +2.54% +130.3200 +129.7100

 

Dollar/Swiss

0.9149 0.9201 -0.57% +3.40% +0.9215 +0.9130

 

Sterling/Dollar

$1.3986 $1.3850 +0.99% +2.38% +$1.3993 +$1.3811

 

Dollar/Canadian

1.2535 1.2510 +0.20% -1.56% +1.2544 +1.2472

 

Aussie/Dollar

$0.7756 $0.7734 +0.30% +0.84% +$0.7784 +$0.7706

 

Euro/Swiss

1.1013 1.1023 -0.09% +1.91% +1.1029 +1.0993

 

Euro/Sterling

0.8606 0.8661 -0.64% -3.73% +0.8672 +0.8590

 

NZ

Dollar/Dollar $0.7177 $0.7148 +0.43% -0.03% +$0.7197 +$0.7117

 

Dollar/Norway

8.2930 8.3665 -0.79% -3.34% +8.4110 +8.2830

 

Euro/Norway

9.9861 10.0290 -0.43% -4.59% +10.0532 +9.9704

 

Dollar/Sweden

8.4002 8.4277 +0.09% +0.00% +8.4762 +8.3784

 

Euro/Sweden

10.1121 10.1032 +0.09% +0.35% +10.1257 +10.0819

 

(Reporting by David Henry in New York and Ritvik Carvalho in London; Additional reporting by Kevin Buckland in Tokyo; Editing by Larry King; Paul Simao and Andrea Ricci)

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Economy

Canadian dollar moves to extend weekly win streak as oil rebounds

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Canadian dollar

The Canadian dollar strengthened against its U.S. counterpart on Friday and was on track for its seventh straight weekly gain as oil prices rose and domestic data added to evidence of robust economic growth in the first quarter.

Canadian factory sales rose 3.5% in March from February, led by the motor vehicle, petroleum and coal, and food product industries, while wholesale trade was up 2.8%, Statistics Canada said.

The price of oil, one of Canada‘s major exports, reversed some of the previous day’s sharp losses as stock markets strengthened, though gains were capped by the coronavirus situation in major oil consumer India and the restart of a fuel pipeline in the United States.

U.S. crude prices rose 1.2% to $64.61 a barrel, while the Canadian dollar was trading 0.6% higher at 1.2093 to the greenback, or 82.69 U.S. cents, moving back in reach of Wednesday’s 6-year peak at 1.2042.

For the week, the loonie was on track to gain 0.3%. It has climbed more than 5% since the start of the year, the biggest gain among G10 currencies, supported by surging commodity prices and a shift last month to a more hawkish stance by the Bank of Canada.

Still, BoC Governor Tiff Macklem said on Thursday if the currency continues to rise, it could create headwinds for exports and business investment as well as affecting monetary policy.

The U.S. dollar fell against a basket of major currencies, pressured by a recovery in risk appetite across markets after Federal Reserve officials helped calm concerns about a quick policy tightening in response to accelerating U.S. inflation.

Canadian government bond yields were lower across much of a flatter curve, with the 10-year down 2 basis points at 1.549%. On Thursday, it touched its highest intraday in eight weeks at 1.624%.

 

(Reporting by Fergal Smith; Editing by Nick Zieminski)

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Economy

Toronto Stock Exchange rises 1.21% to 19,366.69

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Toronto Stock Exchange

* The Toronto Stock Exchange‘s TSX rises 1.21 percent to 19,366.69

* Leading the index were SNC-Lavalin Group Inc <SNC.TO​>, up 16.0%, Village Farms International Inc​, up 9.8%, and Denison Mines Corp​, higher by 9.4%.

* Lagging shares were Aurora Cannabis Inc​​, down 7.2%, Centerra Gold Inc​, down 3.8%, and Canadian National Railway Co​, lower by 3.7%.

* On the TSX 194 issues rose and 35 fell as a 5.5-to-1 ratio favored advancers. There were 25 new highs and no new lows, with total volume of 225.7 million shares.

* The most heavily traded shares by volume were Enbridge Inc, Manulife Financial Corp and Cenovus Energy Inc.

* The TSX’s energy group rose 3.32 points, or 2.7%, while the financials sector climbed 4.80 points, or 1.3%.

* West Texas Intermediate crude futures rose 2.65%, or $1.69, to $65.51 a barrel. Brent crude  rose 2.68%, or $1.8, to $68.85 [O/R]

* The TSX is up 11.1% for the year.

This summary was machine generated May 14 at 21:03 GMT.

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Economy

U.S., Mexico, Canada to hold ‘robust’ talks on trade deal

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The United States, Mexico and Canada will next week hold their first formal talks on their continental trade deal, with particular focus on labor and environmental obligations, the U.S. government said on Friday.

Trade ministers from the three nations are set to meet virtually on Monday and Tuesday to discuss the U.S.-Mexico-Canada (USMCA) deal, which took effect in July 2020.

“The ministers will receive updates about work already underway to advance cooperation … and will hold robust discussions about USMCA’s landmark labor and environmental obligations,” the office of U.S. Trade Representative Katherine Tai said in a statement.

The United States is also reviewing tariffs which may be leading to inflation in the country, economic adviser Cecilia Rouse told reporters at the White House on Friday, a move that could affect hundreds of billions of dollars in trade.

The United States, testing provisions in the new deal aimed at strengthening Mexican unions, this week asked Mexico to investigate alleged abuses at a General Motors Co factory.

(Reporting by David Ljunggren; Editing by Hugh Lawson and Jonathan Oatis)

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